Week In Review: Strong Start To The Year For Stocks

SPX---STOCK MARKET COMMENTARY:
FRIDAY, JUNE 28, 2013

The major averages enjoyed their largest start to the year since 1998/1999 (depending on the index), rallying above 12%. The strong bull market that we are experiencing continues to be driven by global central banks. That said, the US Fed continues to print $4B/day and other central banks around the world are showing no signs of backing off. For most of this year the 50 DMA line and the upward trendline (from November) served as formidable support. Therefore, until the market trades and closes above its upward trendline we have to believe that support should now become resistance.

Monday-Wednesday’s Action: Light Volume Bounce Into Resistance

Stocks opened sharply lower on Monday as fear spread regarding the US Fed tapering QE and a 2008 style credit crunch in China. Stocks fell in heavy volume as fresh concern regarding the Fed tapering and eventually stopping QE. The heavy selling in emerging markets also hurt stocks as fear spread regarding a 2008 style credit-crunch in China.

Stocks opened higher on Tuesday as investors digested a flurry of stronger-than-expected economic data. Overnight, China’s central bank said it would not press banks too hard in an effort to help alleviate a potential credit crunch. The Case-Shiller Index said home prices jumped 1.7% which was its largest monthly increase in history and the largest annual gain in seven years. A separate report showed that new home sales rose +2.1% which was the highest level in nearly 5 years. The Conference Board said consumer confidence surged to its highest level since January 2008, with the index rising to 81.4 from a downwardly revised 74.3. Durable goods rose 3.6% in May which topped the Street’s estimate for a gain of a gain of 3%.

Stocks continued to bounce on Wednesday but remained below their respective 50 day moving averages lines after the final reading on Q1 GDP was announced. The government said the US economy grew by 1.8% in the first quarter of 2013 which missed the Street’s estimate for a gain of 2.4%. Many people believe that the weaker-than-expected economic data will force the Fed’s hand to continue QE. Gold and Silver were hit hard as the relentless selling continued. Consumer confidence in Germany jumped to the highest level in 6 years which bodes well for Europe’s largest economy.

Thursday & Friday’s Action: Stocks Stall At Resistance

On Thursday, stocks continued to their three-day light volume rally before encountering resistance just below their respective 50 DMA lines. A flurry of Federal Reserve officials spoke publicly and reiterated the fact that the Fed will continue to print until the economy improves. A slew of upbeat data was announced. Overnight, China said industrial profits unexpectedly rose 15% in May vs the same period last year. In the U.S., the data was mostly positive. Weekly jobless claims slid by 9k to a seasonally adjusted 346k. Consumer spending rebounded +0.3% in May which matched estimates. Pending home sales surged 6% in May and hit the highest level in 6 years. Stocks opened lower on Friday after the latest round of economic data was released. Chicago PMI missed estimates while consumer confidence beat estimates.

MARKET OUTLOOK: Market Closes Below Resistance

The narrative shifted since the May 22, 2013 high (when Bernanke and the Fed hinted that they may taper QE sooner than initially expected). Now that the market is pulling back we shall be patient and let this pullback run its course. Our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.

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